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Russia

Economic analysis update

In 2014 and 2015 Russia was given a substantial economic blow following a new oil price shock and the implementation of economic sanctions for its annexation of Crimea and its active role in destabilising Eastern Ukraine. This triggered its first significant devaluation crisis in December 2014. Following a series of emergency rate hikes, which were instrumental in supporting the rouble, the currency renewed its weakness to reach an all-time low of 80 versus the US dollar in January 2016, as oil fell below USD 30 per barrel. Since then a period of exceptional stability has prevailed globally and Russian assets are among the top performers this year. At this juncture, we deem it useful to look again at the current economic environment, corporate performance, and market factors to draw a reasonable near term outlook. We have identified the following catalysts:

1. Policy response: a shift away from currency stabilisation policies. Authorities will likely support a weaker rouble after the 18th of September parliamentary elections through gradual reduction in real interest rates from their current abnormal high levels.

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